It finally happened. Media giant Disney (NYSE:DIS) announced firm plans, details, and growth objectives for its new Disney+ streaming service at its streaming-focused 2019 Investor Day. In doing so, DIS finally gave investors reason to cheer the company’s streaming pivot. Now, with all of its streaming catalysts clearly outlined for the next several years (Disney+, ESPN+, Hulu, and Hotstar), investors are buying in, and DIS stock is soaring to fresh all-time highs.
This is no surprise to me. Time and time again, I’ve been saying that calendar 2019 will be a breakout year for DIS stock. The thesis has been consistent and simple. This stock has gone nowhere for several years, weighed down by cord-cutting headwinds. But, in 2019, Disney will start to turn those cord-cutting headwinds into streaming tailwinds. In doing so, DIS stock will end several years of sideways trading, and break out to new highs.
Now, this breakout is finally happening. Over the past five years, DIS stock has been rejected at the $120 level multiple times. After the 2019 Investor Day, the stock is trading close to $130. The breakout finally started. It’s far from over.
Over the course of the next several months and years, Disney’s fundamentals will improve thanks to streaming tailwinds, and those improving fundamentals will converge on what is still a reasonably discounted valuation. This convergence will ultimately drive out-performance in DIS stock, and allow this stock to head towards much higher levels in the long run.
As such, I think now is as good a time as ever to get bullish on Disney stock. This is only the beginning of a long-term, streaming-powered uptrend.
Disney+ Is Here, And It Doesn’t Disappoint
Disney didn’t disappoint Wall Street with the highly anticipated unveil of its Disney+ streaming platform. Specifically, the company actually impressed on four critical points:
- Price. The biggest talk on Wall Street (and Main Street) is that Disney+ will cost just $6.99 per month, which is cheap for a streaming service and substantially cheaper than Netflix (NASDAQ:NFLX), which has a standard plan at nearly double that price. At such a low price, Disney+ is almost in impulse buy range, and you could easily see millions of consumers quickly grab this service shortly after launch because, well, its just $7.
- Speed. Another big talking point on Wall Street is that the launch trajectory for Disney+ is expected to be impressively fast. Specifically, the service is expected to launch in North America in November 2019, or during the first quarter of fiscal 2020. By the end of fiscal 2021 (or just two years later), Disney expects Disney+ to be fully rolled out across North America, Western Europe, Eastern Europe, and Asia. That’s a quick roll-out, and if the company executes on that global roll-out strategy, then upside from streaming will happen much sooner than most expected.
- Value. Disney+ is more than just cheap. It will have tremendous value at that low price-point, too. Specifically, the service will have a bunch of exclusive content, including new originals birthed from Disney’s beloved content assets as well as classic Disney animations which have historically been locked in the so-called “vault”. Beyond that, the service will also have the complete suite of Pixar films. Other Disney content will gradually makes its way onto the platform over time.
- Growth. Most investors just expected a Disney+ unveil. Not many expected management to give an outlook with respect to how quickly the platform will grow. But, management did give such an outlook, and it did not disappoint. By fiscal 2024, or within five years, the company expects to have somewhere between 60 million and 90 million subs, which at the midpoint would make it roughly half the size of Netflix.
Overall, thanks to a low price point, a quick global roll-out, valuable content on the platform, and aggressive five year growth targets, the unveil of Disney+ impressed investors. That’s why DIS stock rushed to new highs following the unveil.
Disney Stock Has Tremendous Streaming-Powered Upside
This big breakout in DIS stock is just beginning.
Let’s look at some numbers here. Disney is expecting roughly 75 million subs by fiscal 2024. That seems doable given that Netflix added 30 million subs last year, and Disney is just about as valuable as Netflix when it comes to content. At $7 per month, 75 million subs would translate into $6.3 billion in revenue. Disney did under $60 billion in revenue last year. Thus, Disney+ has an opportunity to tack on more than 10% to Disney’s total revenue within the next five years.
But, the revenue from Disney+ is “more valuable” because its coming from a secular growth source. That is, considering the streaming market is marching towards 1 billion global subs, Disney+ likely won’t be done growing at 75 million subs in 2024. Thus, the revenue from Disney+ will be rewarded with a higher multiple. Indeed, it should get a Netflix-type multiple.
Right now, NFLX stock trades at 10-times trailing sales. Applying that same multiple to Disney+, then Disney’s new streaming service could be worth over $60 billion by 2024.
To be sure, growth in streaming will negatively impact Disney’s Media Networks revenue. That segment could reasonably fall to $20 billion in revenue by 2024, versus nearly $25 billion today. Assuming everything else grows at a rather historically standard mid to high single digit pace, then Disney’s revenue ex-streaming could pan out to roughly $75 billion by 2024. Disney normally trades at 3.2-times trailing sales. Based on that historically average multiple, Disney ex-streaming could be worth $240 billion by 2024.
Add back in the $60 billion from streaming, and you get to a potential 2024 market cap of $300 billion. The market cap today stands below $230 billion. Thus, DIS stock appears to have healthy streaming-powered upside potential over the next several years.
Bottom Line on DIS Stock
The big, streaming-powered breakout in DIS stock has finally arrived, and it won’t end anytime soon. Disney+ will be huge, and the growth of this streaming service over the next several years will ultimately take this sideways stock, and turn it into a winner.
As of this writing, Luke Lango was long DIS and NFLX.